STOP Early Journal Content on JSTOR, Free to Anyone in the World This article is one of nearly 500,000 scholarly works digitized and made freely available to everyone in the world by JSTOR. Known as the Early Journal Content, this set of works include research articles, news, letters, and other writings published in more than 200 of the oldest leading academic journals. The works date from the mid-seventeenth to the early twentieth centuries. We encourage people to read and share the Early Journal Content openly and to tell others that this resource exists. People may post this content online or redistribute in any way for non-commercial purposes. Read more about Early Journal Content at http://about.jstor.org/participate-jstor/individuals/early- journal-content . JSTOR is a digital library of academic journals, books, and primary source objects. JSTOR helps people discover, use, and build upon a wide range of content through a powerful research and teaching platform, and preserves this content for future generations. JSTOR is part of ITHAKA, a not-for-profit organization that also includes Ithaka S+R and Portico. For more information about JSTOR, please contact firstname.lastname@example.org. THE PRESENT POSITION AND PROBABLE DE- VELOPMENT OF ACCOUNTANCY AS A PROFESSION. J. E. STERRETT. Every important interest or movement presents itself to the serious thinker in the twofold aspect of past and future — history and prophecy. Only through a knowl- edge of the first is the second possible ; only through an interest in the second does the first assume its rightful importance. I propose to direct your attention briefly to the subject of accountancy in the light of these two aspects, that we may find what it now stands for and also, if possible, gain an insight into what it may become if proper efforts are directed toward the evolution of higher professional ideals. In the first or historical aspect, it may be said that while accountancy as a distinct profession in the United States is of so recent a development that it may be said to have scarcely any history, yet on the other side of the Atlantic, particularly in Scotland, it has been recognized for more than a century as a distinct and honorable calling; and for over half of that time Scottish societies have de- manded a training upon the part of candidates for admission equal to the education required in law and in medicine. In England, while of a somewhat later growth, account- ancy has made rapid strides. In the two great societies now existing there are at least five thousand accountants 85 86 American Economic Association who may be said to be in active practice. In addition to this many have gone out to the British colonies, while still others, trained in England or Scotland, have come to our shores and, in not a few cases, have become leaders in the profession in the United States. Prior to twenty years ago the public accountant was in no true sense a factor in American business life. Indeed, it would not be far wide of the mark to apply this state- ment to a period within ten years, during which the work of public accountants has at least quadrupled, if indeed it has not increased ten-fold. Without boasting, this fact must be recognized in considering present conditions, for obviously the pressure that has been put upon individ- ual accountants during these recent years has not favored the development of a high type of professional life. While this acknowledgment does not justify certain present con- ditions, it does at least explain why they exist, if it does not to some extent excuse them. In its legislative development accountancy has followed the general trend of that of the medical profession some years ago. Thus far, the legislation that has been ef- fected merely provides for recognition and also sets up prescribed standards, which, when attained by the appli- cant, permit his using the title of Certified Public Ac- countant, or its distinctive initials, C. P. A. This usage guarantees to the public that certain requirements have been complied with. Earnest efforts are being made to raise these standards to a higher level with an approxi- mate uniformity among the states. Anyone who so desires and who can find clients to patronize him is at liberty to practice as a public accountant anywhere in the United States. It is, however, altogether probable that within a short time restrictive legislation will be secured under which it will be necessary for all those who wish to prac- Accounting as a Profession 87 tice to conform to reasonable standards of education and training. In Great Britain, because of the standing of account- ancy as a profession, young men of good family and with a college or university education are attracted to it in large numbers. Before being permitted to practice as a chartered accountant, however, these men must pass through an articled clerkship of from three to five years, during which time they draw no salary. Moreover, they usually pay a premium of from a thousand to twenty-five hundred dollars before being articled. After passing their preliminary examinations they must succeed in an intermediate and in a final examination. These tests cover not only accounting in the ordinary sense of the term, but also require a good knowledge of mathematics, economics, and at least one modern language. In America the articled clerk system does not exist. A young man coming into the profession here can either enter the office of an accountant as a clerk on a salary, or he can secure part at least of his theoretical training in one of the university schools. These schools are of such recent origin that it is yet too early to determine just how useful a purpose they are going to serve in the develop- ment of accountancy, but the attitude of accountants gen- erally toward them is that of hopeful anticipation. That they have not yet provided a form of training that has been wholly satisfactory to accountants is doubtless due at least in part to the difficulty of securing instructors who understand something more than the most elemen- tary features of accountancy. It would hardly be ex- pected that a medical school could attain high reputation with a faculty composed of men who, however great their knowledge in allied fields, were possessed of no hard earned experience in the diagnosis and treatment of dis- 88 American Economic Association ease. It is to be hoped, therefore, that the university- schools may not be manned entirely by instructors who have only a theoretical knowledge of accounting practice. This point is vital, and any school failing in it is likely to prove disappointing to the institution with which it is connected and to the profession which it aims to serve. In spite of the lack of orderly means of training, the public accountant has attained in this country a position of considerable importance. The intelligent business man of today knows what a public accountant is, and has a fairly clear notion of what he does. Corporations of the better class here are of their own volition rapidly adopting a practice long established in England (which has become obligatory under the Com- panies act of 1900), and are retaining public account- ants to make periodical audits. Such corporations us- ually publish a certificate signed by these auditors, testi- fying to the integrity of the accounts issued to the invest- ing public. Within very recent years this practice has made such headway that the present rate of increase will shortly place in an apologetic position those corporations that do not adopt the practice. Thus, in the audit of accounts of corporations and others, in the investigation of properties for prospective purchasers, in the organization and installation of ac- counting systems and in the revision of business methods, the accountant of today finds himself in a position where he not only has the favorable opinion of the business community, but finds in his work a constantly enlarging sphere of usefulness. Turning next to the more speculative, and perhaps more interesting, division of my subject — the prophetic aspect — let us attempt to investigate the probable devel- opment of this youngster that has landed in a somewhat Accounting as a Profession 89 rough-and-tumble fashion in our midst. It would seem as though three courses are open, along any one of which it might be possible for accountancy to develop. First, after the manner of the age, it might merge with other existing professions, or with parts thereof, to form a composite profession including, perhaps, certain classes of work now conducted by engineers, and possibly also absorbing certain- kinds of work now carried on by the legal profession, and also taking up the burden of that somewhat shadowy individual, the business adviser. It is reasonable to presume that the successful engineer of the future will have a more comprehensive knowledge of accounts and accounting practice than had his brother of the past ; and the lawyer, too, is finding that his prac- tice often takes him into the field of accounts, of which he can no longer afford to be ignorant. It is hardly likely, however, that either of these professions will ser- iously attempt the difficult task of riding two horses at once. It is much more likely that both will assume to- ward accountancy the attitude now adopted by the best accountants toward engineering, and particularly toward the law. An accountant in active practice needs to have a fairly comprehensive knowledge of those branches of legal knowledge commonly known as commercial law. This knowledge, however, does not in any way interfere with his relations with the legal profession, and his knowl- edge of the law only enables him to cooperate more fully with his legal brother in a common effort to attain the ends of equity and justice. Friendly cooperation rather than combination would seem to be the logical develop- ment of engineering, law, and accountancy. Each of these professions has within it ample ground that is in- dividual and distinctive, although in company with all other classifications of human knowledge and activity 90 American Economic Association there are of necessity certain points of contact where one merges in the other. The so-called business adviser, as a distinct entity, is scarcely yet a concrete proposition, and it is hardly con- ceivable that he will attract much serious attention in the near future. Advice will be sought by the business man according to his needs from all the professions, and with the present development the ground seems to be so cov- ered that there is little room for another specific profes- sion unless it is to supplant some one of those already in action. Neither the need nor the probability for this exists today, and discussion of it is little worth while. Granting, then, that accountancy is to retain an inde- pendent existence, some would urge that its largest use- fulness will be attained by specialization. That is to say, certain members of the profession will devote all their attention, for instance, to banking, and will thus become deeply versed in not only the accounts of banking insti- tutions but also familiar with all the mysteries of fiscal operations. Others, again, will find their field in the foundry or in the machine shop, where they will familiar- ize themselves with industrial processes and the means of creating and maintaining the most effective forms of or- ganization, as well as the most simple and yet most com- prehensive methods of accounting for these classes of business activity. Still others may specialize in the organization, adminis- tration, and accounting of our great department stores. So on through the list some would have us see the ac- countant of the future turning away from general practice to the less extensive but more intensive work of the spe- cialist. In some ways this is an attractive vision. The hu- man mind does reverence to the man who has chosen to limit the breadth of his field to pursue it to unlimited Accounting as a Profession 91 heights and depths, — whatever that study happens to be. These forms of specialization, however, exact their own penalty. It is the rare man indeed who can at once maintain intensity and breadth of vision, and it is at least an open question whether professions in which specializa- tion has been carried farthest, as in medicine, have found it an unmixed blessing. Is it not a matter of common knowledge that the health, even the life, of many a patient has been imperilled by the severe specialist who, enam- oured with his own little branch of medical science, has failed of that larger vision that would have detected con- tributing causes of first importance? Two factors seem to militate against a high degree of specialization in accountancy. One is the fact that "busi- ness" is a large and complicated concept, and, although at first blush it would seem as though this were an argument in favor of specialization, it is nevertheless true that the business man has to entertain this concept, and anyone who is to be of any but minor assistance to him must be able to approach a problem with a more comprehensive knowledge than a specialist can hope to bring to bear upon it. Much of the work that has occasionally brought discredit upon accountancy in the past has been the result of a lack of intelligent appreciation of the larger under- lying principles involved. It is a relatively easy thing to devise ways and means of dealing with small sections of a problem, but, unless these be coordinated with other sec- tions to which they bear a more or less intimate relation, the practical operation of the whole will be retarded rather than forwarded. Knowledge gained through an audit is frequently of the highest value to the account- ant in devising a system of accounts or records; and experience in one branch of business is often extremely useful if not absolutely necessary for an accountant to 92 American Economic Association deal satisfactorily with the affairs of other types of busi- ness. Another important factor working against a highly de- veloped type of specialization is the extensive organization required in an accountant's office. There are, of course, many men who are practicing alone, but even these, if their practice is of any moment, find it necessary to main- tain staff organizations that are out of proportion to those required in most, if not all, other professions. The ten- dency of the times is, moreover, strongly towards the lar- ger organizations found in firms made up of a number of partners and carrying large permanent staffs of trained assistants. Further than this such firms find it neces- sary to maintain offices in perhaps a number of different cities. All this makes specializing difficult even though such specialization were considered desirable. If, then, accountancy is not to lose its existence, and is not to split up into a number of camps, what, it may be asked, has the future in store? In answer to this, and while denying most positively that the accountant is to become a narrow specialist, it may be frankly conceded that there are two phases of accounting work, each pre- senting some distinctive features. One is analytic as typ- ified by the audit and the examination; the other is syn- thetic or constructive, instances of which are found in the construction and installation of cost and other systems of accounts. It is quite probable that some division along this broad line will take place. Some accountants, or accounting firms, will find their largest field of usefulness in con- structive work, while others will build their reputation mainly upon audits and investigations. Many others, however, will undoubtedly combine these functions and will continue a general practice even though a certain Accounting as a Profession 93 amount of specialization may be maintained in the firm or in the staff. The standardization of accounting classifica- tions and methods will have a tendency to reduce the vol- ume of constructive work, although it is probable that the growth in business and the generation of new ideas will more than counterbalance this contraction. So it is likely that for many years to come there will be a profit- able, although ever difficult and vexatious, field for the accountant in devising and installing accounting systems and reorganizing business methods. A very large development is almost certain to come in the near future in the matter of annual or at least of per- iodical audits of the accounts of corporations and others. It should be remarked in passing that the public generally in this country does not appreciate the real meaning of the term audit as used by accountants. The average man is likely to conceive of an audit as a checking over of vouchers and the comparison of entries in the books with various sorts of original data and in this manner ascer- taining the mathematical accuracy of the records. It is true that this is one form of an audit and commonly known among accountants as a detailed cash audit. It has and will continue to have a certain degree of usefulness, and will be employed more or less extensively in dealing with the accounts of smaller business organizations. In auditing the accounts of a large industrial corporation or of a trunk line railway, it is obvious that this method of procedure would entail a volume of work that would be prohibitive and would produce results in inverse ratio to the time spent upon the work. Time does not permit of an adequate discussion of the principles involved in the audit of the accounts of a large corporation, but, briefly speaking, attention must be di- rected mostly to the preparation of the balance sheet. If 94 American Economic Association from year to year the balance sheets presented by a cor- poration are correct, it follows as a matter of course that the true profit and loss for each period is revealed, so that therefore the whole case rests upon the integrity of the balance sheet. Have the assets been properly valued? Has sufficient allowance been made for maintenance and depreciation? and for possible losses through bad debts or otherwise? Are the current assets properly classified so that an intelligent opinion can be formed as to their probable realization? Are all of the liabilities included, or is there perhaps a large volume of liabilities of under- lying companies that are not revealed upon the general balance sheet? These and many others are questions that present themselves, and are often of a most difficult and highly essential nature. It must be borne in mind that a balance sheet of any large corporation is not a statement of facts that can be demonstrated with mathematical accuracy so much as it is an expression of an honest and intelligent opinion. In this expression of opinion the public accountant is now being recognized as an authority, and what is being widely done through the voluntary action of corporations that desire to deal fairly with their investors will doubtless be- come a legal requirement, and before many years the inde- pendent audit of all corporations offering their securities to the public will be firmly established. With this, or possibly preceding it, will also come a civil liability on the part of the accountant for the faith- ful and diligent performance of his duties. As yet there are no decisions in this country upon the question of the liability of an auditor, but under the English law his liability, both civil and criminal, is pretty well estab- lished. A case in point was one in which two fairly prominent chartered accountants had been auditors of a Accounting as a Profession 95 bank for a number of years, and had failed to disclose frauds that had been practiced by the officers of the insti- tution ; and upon the failure of the bank the auditors with the directors were, after trial, imprisoned at hard labor. In another leading case it is generally understood that a firm of accountants effected a settlement by paying £60,000 rather than take their chances with a jury. Civil liability on the part of the accountant is, I believe, certain to come in this country, and while each member of the profession may well pray that the offense shall not come by him, it is nevertheless true that the effect of a clearly defined civil liability will be salutary. It will give confi- dence to the business public in the accountant's certificate as nothing else will do, and while the best accountants to- day recognize their moral responsibility quite as much as it will ever be necessary for them to recognize any legal responsibility, the knowledge that a civil and possibly a criminal liability attaches to them will deter the careless or the indifferent. Accountancy, then, is not to be a thing of shreds and patches, but will, if those in whose hands its fortunes are entrusted fulfill their part, expand along the lines upon which it is now operating, growing in dignity and power until it will stand shoulder to shoulder, in the esti- mation of the public, with those older professions whose courses have been a laborious evolution of years and cen- turies. Accountancy will offer within itself a field for the exercise of widely differing talents, and while the individual members will vary in their scope and methods of practice, they will still be in the true sense of the term and will ever take pride in being called account- ants. In an hour when complaints are heard on every side that the law is crowded, that the young man entering 96 American Economic Association that noble profession has years of labor and of waiting before he can hope to gain renown, and when the same cry goes up from other professions, may we not well suggest to the young man aspiring for professional hon- ors that accountancy affords an adequate field for trained minds and willing hands, and offers inducements, finan- cial and otherwise, that are largely in excess of those at- tainable in any but exceptional instances in the older pro- fessions ?